Procurement Procedures – Is Your Federal Funding At Risk?

The new federal procurement standards significantly alter the way governments and nonprofits handle purchasing. With some upfront planning and implementing the right steps ahead of time, you can avoid running afoul of the federal procurement guidelines. In this article, VonLehman's Kristin Leadingham walks through the standards and some best practices for keeping you in compliance.

Summing up the standards

The standards, included in the new Uniform Guidance, impose strict requirements on governmental and nonprofit organizations receiving federal funds. The guidance, “Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards,” can be found here. The procurement portion of the standards is effective for calendar years ending December 31, 2018 and fiscal years ending June 30, 2019.

According to the standards, the amount of the purchase determines the procurement methods an organization must employ. “Micro-purchases” of supplies or services up to $3,500 can generally be awarded without soliciting competitive quotes. “Small purchases” of services, supplies or other property that do not exceed $150,000, require price or rate quotes from several qualified sources.

For purchases exceeding $150,000, vendors or suppliers must be selected through publicly solicited sealed bids or competitive proposals. (Sealed bids are preferred for construction contracts.) The selected proposal must be the lowest bid or the proposal most advantageous to the relevant program based on price and other factors that impact the program performance. Additionally, a cost or price analysis must be conducted for every purchase over $150,000, to make independent estimates before receiving bids or proposals.

Noncompetitive proposals solicited from a single source are permissible under limited circumstances — for example, when a public emergency won’t allow the delay associated with competitive solicitation.

The new standards require procurement procedures documented in writing. Conflict of interest policies must be included covering employees involved in procurement as well as all entities owned by or considered “related” to the organization. You also must keep records detailing each procurement, including bids solicited, selection criteria, quotes from vendors and the final contract price. Designing a checklist that outlines the decisions needed at each price level will make the process more manageable, as will keeping the required documentation.

Clearing hurdles to compliance

By now, most governmental entities and nonprofits are already into their 2017 fiscal years and should already be in compliance with the new standards, although some have found it to be a struggle. Significant barriers to full compliance include:

Culture shock. Governments and nonprofit organizations, like for-profit companies, have often selected their suppliers and contractors based on historical performance and personal relationships. However, the new standards don’t consider those to be good reasons. As a result, governments and nonprofits must adopt an entirely new mindset — no small task for any organization! It calls for multiple rounds of staff training and visible buy-in from the highest levels of management.

Staff resistance. It can take the frontline staff longer to adapt to a new approach than management. Even if they’re willing to change, they may need some time to break old habits. You might consider including compliance with the new procedures as part of their performance evaluations.

Documentation overload. The new standards come with a boatload of documentation requirements that few organizations previously met. New policies and checklists won’t ensure compliance with these demands.

Better safe than sorry

While real, these barriers can — and must — be overcome. Failure to comply with the procurement standards could result in your entity’s loss of federal funding. You can reduce that risk, though, by auditing your new procedures and processes to confirm they’re getting the job done. If you need assistance, a VonLehman advisor can help.